Funded Status of U.S. Corporate Pensions Falls to 92.1 Percent, According to BNY Mellon ISSG

Public Plans, Foundations and Endowments also Lose Ground

Apr 02, 2014, 10:00 ET from BNY Mellon

NEW YORK, April 2, 2014 /PRNewswire/ -- The funded status of the typical U.S. corporate pension plan declined 0.5 percentage points in March 2014 to 92.1 percent as liabilities increased faster than assets, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG).   

The BNY Mellon Institutional Scorecard for March noted liabilities rose 0.7 percent, outpacing the 0.3 percent increase in assets during the month. 

Year to date, the funded status of corporate plans is down 3.1 percentage points, according to the scorecard.

Public defined benefit plans, endowments and foundations also lost ground as they failed to attain their targeted returns, ISSG said.

"Despite a high degree of volatility in March, the markets finished the month close to the same levels that they began," said Andrew D. Wozniak, director, portfolio management and investment strategy, ISSG. "Asset returns were restrained, leading to slightly weaker funded status for corporate plans and preventing public plans, endowments and foundations from reaching their targeted returns." 

Wozniak added, "With the net decline in funded status through the first three months of 2014, plan sponsors were less motivated to reduce their exposure to market volatility.  This was in marked contrast to 2013, when we saw a significant move toward reducing risk."

The increase in liabilities for corporate plans in March was due to a two-basis-point decline in the Aa corporate discount rate to 4.56 percent, the report said.   Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities. 

On the public side, assets at the typical defined benefit plan in March rose 0.1 percent, producing excess return of -0.6 percent, missing the goal of positive 0.6 percent returns, ISSG said.  Year over year, public plans are ahead of their target by 3.6 percent, ISSG said.

For endowments and foundations, the real return in March was -0.6 percent, missing the target for spending plus inflation, ISSG said.  This underperformance was driven largely by their exposure to private equity, which declined 1.4 percent in March, the report said. Year over year, foundations and endowments are ahead of their target by 4.1 percent.

Notes to Editors:

The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.

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